Software-And Right People-A Plus In Indirect Lending
For some CUs around the country, "indirect" car loans have been a lending windfall. For others, it's been a nightmare of bad or defaulted loans, even resulting in the firing of CEOs who led the way into indirect lending.
FORUM Credit Union said it has found a way to not only boost indirect car loans by more than 100%, but also to reduce the number of bad or average loans through the use of technology, the wisdom attained after a decade of car loans and good, old-fashioned teamwork.
The $875-million FORUM CU uses computer software called TAPS (Total Account Processing System) developed by its own CUSO, FORUM Solutions. TAPS allows a credit union to automatically underwrite loan applications using the credit union's guidelines and policies, and also seeks to create cross selling opportunities.
Car dealers use DealerTrack to select up to six lenders and receive a yes or no answer and a set of rates for a good application.
Doug True, who is both the president of FORUM Solutions and senior vice president of lending and technology for its parent credit union, said CUs can use the software to develop their own criteria to decide which loans to accept, deny, or take a closer look at with a manager and underwriter. As a result, credit unions don't have to judge a loan application based on criteria written by someone else.
True said FORUM CU wrote $14.4-million in new car loans during May of 2005, a 177% increase over May, 2004. True was quick to point out that FORUM CU has signed car loans for a decade and has an experienced team in place to make sound judgements on applicants. But, combined with TAPS, Forum CU's auto lending accelerated quickly.
A key feature of TAPS is the ability of the software to automatically accept good loan applications. After a credit union uses TAPS to develop its own criteria for a successful applicant, the software will automatically accept the "cream of the crop" and reject all bad applications. Applications that fall in the "gray area" are sent to an underwriter for examination and a decision by an experienced staffer.
True said that TAPS, while providing a car dealership a decision in seconds, also creates more freedom for underwriters to work personally with members who have a short record of credit, a poor record, or who are simply struggling through a difficult phase in life. The technology even allows FORUM underwriters to work outside the office.
For example, Saturday is a big day for car dealers with many shoppers coming in to look for new cars. "The underwriters love it. It really zeroes in and lets them deal with the members," he said. "Some underwriters even work at home on Saturdays."
True was quick to point out the credit union also has a dedicated team of underwriters, sales staff and a manager in a "dealer division."
While TAPS is a time and work saver for underwriters, Forum CU tasked two employees for the sole purpose of speaking to and visiting car dealerships to explain the benefits of the software.
Stressing the effect of Forum CU's long track record with auto loans, True said the dealer division made a concentrated effort to analyze nearly all of its data for "business intelligence." This pool of previous and past loans allows credit union officials to determine exactly what makes for both good and bad loans.
True also said that FORUM CU dealer division staff also contact a car dealership if the customer-signed loan reaches FORUM with rates or conditions different than what TAPS initially offered.
True said these "key" people needed the proper human and diplomatic skills to resolve differences and secure a good loan.